Alaskan governor Sean Parnell signed the bill yesterday which reduces the state's head tax. If the state would pass the reduction, the cruise industry earlier agreed to drop their lawsuit against the state which was seeking to have the tax struck down entirely.
There are two key reductions included in the bill. One reduces the tax charged on each passenger ticket from $46.00 to $36.50. The other credits passengers for head taxes charged by Alaskan ports, such as Juneau and Ketchikan, which do not share in the state tax. Since most itineraries call at both those ports, for most people it will mean a further $15 reduction. The reductions will become effective on November 1, 2010.
Parnell supported the tax cut, which the cruise lines wanted, saying that since 2009 when cruise lines began to reduce capacity, there was a sharp decrease in the state's visitors, in both 2009 and 2010. He said the state lost more than 260,000 visitors, $420 million in direct and indirect spending, and up to 5,000 jobs.
The relatively small decrease (resulting from the tax cut) in the total price of an Alaskan vacation probably won't move much consumer demand, but it will move cruise line profitability, at least to the lines' way of thinking. (See our earlier articles.)
For this reason, the cruise lines wanted the reduction in the tax. In any business, including tourism, you have to appease the customer, and the cruise lines are the state's customers. They are the ones who decide how many ships come to Alaska and ultimately, therefore, how many visitors can cruise to Alaska.
But still, the state may be setting themselves up for a disappointment.
From comments in the media, it seems the governor and citizens are expecting berths taken out of the market to be restored. Deployment schedules are already set for 2011, so it's too late to see any restoration next year, but 2012 deployments are now being finalized, and they seem to be anticipating more ships then.
The cruise lines only agreed to drop their lawsuit against the state in return for the head tax reduction. There were never any promises made with regard to capacity. There are many more issues to be addressed in Alaska to make the industry as profitable there as they are elsewhere.
As noted in Carnival Corp's earnings call this week, with the reduction in capacity, the pricing of their cruises to Alaska is much stronger, which is what the lines want.
If they were to add capacity, it would probably only serve to weaken the pricing again. Alaska, therefore, may not get more visitors out of the deal, which is what they were hoping for.
The cruise lines may, however, show their gratitude for the tax cut in a less measurable way - by not cutting capacity further in 2012.
This article appeared in the June 25, 2010, edition of Cruise News Daily.